Clements Dunne & Bell Pty Ltd v Commissioner of Australian Federal Police [2000] FCA 1387

FEDERAL COURT OF AUSTRALIA

Clements Dunne & Bell v Commissioner, Australian Federal Police

[2000] FCA 1387

PRACTICE AND PROCEDURE – client legal privilege – whether documents seized by Australian Federal Police are subject to client legal privilege – whether documents brought into existence with the dominant purpose of obtaining or giving legal advice. Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 168 ALR 123, applied. Leary v Federal Commissioner of Taxation (1980) 47 FLR 414, referred to. CLEMENTS DUNNE & BELL PTY LTD v COMMISSIONER, AUSTRALIAN FEDERAL POLICE (NO. 1) V210 OF 2000 NORTH J MELBOURNE 6 OCTOBER 2000

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY V 210 OF 2000

BETWEEN: CLEMENTS DUNNE AND BELL PTY LTD

APPLICANT

AND: COMMISSIONER, AUSTRALIAN FEDERAL POLICE

RESPONDENT

JUDGE: NORTH J

DATE: 6 OCTOBER 2000

PLACE: MELBOURNE

REASONS FOR JUDGMENT (NO. 1) 1 The question before the Court is whether the applicant, Clements Dunne & Bell Pty Ltd, is entitled to maintain its claim to client legal privilege against the respondent, the Commissioner of the Australian Federal Police. 2 The issue arises out of the execution by the respondent of three search warrants. The first warrant was executed on the 23 March 2000 at the applicant's premises at Level 14, 350 Queens Street, Melbourne. The second warrant was executed on the same day at the premises of Andrew Gray and Associates, solicitors, at 102 High Street, Berwick. The third warrant was executed on the 3 May 2000 at the home of Andrew Gray at 18 Casey Drive, Berwick. The second and third warrants will be referred to as "the Gray warrants". 3 The applicant is a firm of chartered accountants and tax agents. In about May 1997 the applicant engaged the services of Coadys, solicitors, on behalf of a number of clients including A & G Sheet Metal Fabricators Pty Ltd, Fraser & Jenkinson Pty Ltd, and Radioactive Clothing Pty Ltd in order to establish employee share plans/productivity incentive plans. These plans involved the establishment of a separate entity by employers in such a way that contributions by the employers for the benefit of employees would be tax effective. In October 1997 Coadys wrote to the applicants advising that the Australian Tax Office was conducting a review of such plans. The head of the team investigating the plans was Mr Nick Petroulias who was the Assistant Commissioner, Large Business and International section. In November 1997 Mr Petroulias told Mr Bell, a now deceased director of the applicant, that the Australian Tax Office view was that the Coadys' plan was not effective at law and would be challenged through the courts. 4 On 26 November 1997 Mr Bell attended a seminar conducted by Mr Andrew Gray, a solicitor from the firm Andrew Gray and Associates concerning the way in which the plans could be modified to address the concerns of the Australian Tax Office. Mr Bell sought advice from Mr Gray on behalf of the clients of the applicant who had established productivity incentive plans. Of the six clients who had established such plans one opted to dismantle the structure and the remaining five chose to restructure the plans in order to answer the concerns which Australian Tax Office had expressed. The present claim for client legal privilege relates to three of those clients, namely A & G Sheet Metal Fabricators Pty Ltd, Fraser & Jenkinson Pty Ltd and Radioactive Clothing Pty Ltd. The entities which conducted the productivity incentive plan for those clients respectively were Alfgor Investments Pty Ltd, Henry Court Investments Pty Ltd, and London Beach Investments Pty Ltd. Each of these clients of the applicant instructed the applicant to obtain legal advice from Andrew Gray and Associates in order to modify the structure of the plans to meet the deficiencies identified by the Australian Tax Office. 5 As mentioned earlier the search warrants were executed against the applicant and Andrew Gray and Associates, and Andrew Gray. The applicant immediately commenced this proceeding in respect of the search warrant executed against it. An agreed process was entered into between the parties in order to resolve as much of the controversy as possible. The documents seized from the applicant were inspected pursuant to the agreement between the parties by Mr Clive Scott as representative of the applicant and Mr J Fajgenbaum QC as a representative of the respondent. The documents sized from the applicant were originally listed in annexure A to the original application. Following the inspection process Mr Scott filed an affidavit affirmed on 2 June 2000. Exhibit CGS2 to that affidavit lists the documents inspected together with an indication of the result of the inspection. The documents in respect of which the list shows that the question of legal client privilege was not agreed (the CGS2 documents) are part of the subject of the present application. 6 Andrew Gray and Associates also commenced proceedings in relation to the Gray warrants. An agreed process was entered into between the parties in order to resolve as much of the controversy as possible. As a result of that process the parties agreed that the respondent, the Australian Federal Police, would receive a number of documents relating to the dealings between Andrew Gray and Associates and Clements Dunne and Bell Pty Ltd. 7 The applicant in the present proceedings wished to challenge the release of documents concerning its clients to the Australian Federal Police agreed to by Andrew Gray and Associates. Consequently, the applicant amended the application in the present proceedings on 29 May 2000 to include a claim in respect of documents relating to Clements Dunne and Bell Pty Ltd seized from Andrew Gray and Associates and from Andrew Gray pursuant to the Gray warrants. The particular documents which fall into this category are set out in annexure B to the amended application (the annexure B documents). 8 In an affidavit sworn on 10 July 2000 Paul John Clements, a chartered accountant who is a director of the applicant, described the documents in contention as: "(i) correspondence containing requests for legal advice from our office to Mr. Gray; (ii) file notes of conversations with Mr Gary [sic] seeking legal advice; (iii) correspondence from Mr. Gray to our firm in relation to the clients on whose behalf the claim is made; (iv) file notes recording the legal advice orally provided by Mr. Gray; (v) correspondence containing requests for legal advice from our office to Coady's; (vi) file notes of conversations with Coady's seeking legal advice; (vii) correspondence from Coady's to our firm in relation to the clients on whose behalf the claim is made; and (viii) file notes recording the legal advice orally provided by Coady's." Further, there is a brief description of the nature of each document in exhibit CGS2 and annexure B. 9 The agreed inspection process was conducted on behalf of the respondent by Mr Fajgenbaum QC but this process did not permit the knowledge he gained to be used in the argument on this present application. In the result the submissions of the respondent have been made without the respondents seeing the documents in question. 10 The information available to the respondents for the purpose of this application was the above description of the documents by Mr Clements and the description of the documents in exhibit CGS2 and annexure B. In addition, in his affidavits Mr Clements described the circumstances in which the relationship with Andrew Gray and Associates developed. His description is the basis for the facts recounted in pars 3 and 4 of these reasons. 11 At a directions hearing on 3 August 2000 I determined that the claim to client legal privilege would proceed in stages. The first stage would involve consideration whether the documents in dispute were capable of attracting client legal privilege leaving aside considerations relating to any alleged illegal, improper, or fraudulent purpose, or the question of waiver. If necessary, the question whether client legal privilege did not arise because of any illegal, improper or fraudulent purpose, or because privilege was waived would be dealt with in the second stage of the application. This decision concerns the determination of the first stage. 12 It was common ground that the proper test for the existence of client legal privilege is that the documents were brought into existence with the dominant purpose of obtaining or giving legal advice: Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 168 ALR 123. 13 The respondent contended that the documents in question did not attract client legal privilege because they were documents brought into existence as part of the entrepreneurial activities of Coadys and Andrew Gray and Associates and not as part of the professional practice of those firms as solicitors. The respondent relied upon the statement of Brennan J in Leary v Federal Commissioner of Taxation (1980) 47 FLR 414, at 435, as follows: "But activities of an entrepreneur in the promotion of a scheme in which taxpayers will be encouraged to participate falls outside the field of professional activity; those activities are not pursued in discharge of some antecedent professional duty. Entrepreneurial activity does not attract the same privilege nor the same protection as professional activity; and the promotion of the scheme in which particular clients may be advised to participate is pregnant with the possibility of conflict of entrepreneurial interest with professional duty." 14 The respondent also contended that the documents were transactional documents, the purpose of which was to effect particular transactions for the establishment and administration of the productivity incentive plans and the entities which operated the plans. Thus, the purpose of the documents fell outside the purpose necessary to attract client legal privilege. As I said earlier, these submissions were made by the respondent under the disadvantage that the respondent had not seen the documents in dispute. 15 I have inspected the CGS2 and annexure B documents in dispute at the invitation of the parties. That inspection demonstrates to me that the documents are as described by Mr Clements in his affidavit and are as described in exhibit CGS2 and annexure B. The contents are consistent with the circumstances outlined in Mr Clements' affidavits referred to earlier in these reasons. Save for the question of illegal, improper, or fraudulent purpose, and to the question of waiver, all the documents in dispute would attract client legal privilege. 16 The matter will now be listed for further directions concerning the determination of the remaining aspects of the application.